💻 Has Zoom Learned From Its Reality Checks?

Salesforce shares rise most in two years.

Hey Global Investor! Here’s what you need to know before the US markets open.

Market Snapshot 📈

S&P 500 (Wednesday’s Close) 4,101.23 -30.92 (0.75%)

NASDAQ (Wednesday’s Close) 11,994.46 -86.93 (0.72%)

FTSE 100 (5 PM IST) 7,532.95 -74.71 (0.98%)

NIFTY 50 (Today’s Close) 16,628.00 +105.25 (0.64%)

USDINR (Today’s Close) 77.58 (1 Year +6.49%)

🔥 Top Movers

EVLO +20.48%
LPI +16.73%
VAXX +15.17%

APPS -22.77%
FUV -16.52%
PLL -15.44%

💻 Zoom: Back In Focus?

Zoom Video Communications Inc. (ZM) has seen it all – pandemic boom and subsequent bust. The company now expects growth to slow further but looks at avenues beyond its core business. Zoom can only hope the investors will answer its call again.

The “X” Factor

An “X” sums up the journey of two companies during the pandemic. Zoom and Exxon are poles apart in terms of industries and business operations. You can almost say they’re perfectly negatively correlated.

At the start of 2020, Zoom was still trying to carve its place and compete with the likes of Skype when it comes to video calls. The pandemic forced individuals and companies alike to look for online options. With its simple-to-use interface, Zoom became an instant hit with users. By October 2020, Zoom’s market cap had surged past Exxon’s at over $160B.

On the other hand, Exxon had a long winter with oil prices plummeting, global transportation networks coming to a virtual standstill, and at one point, oil prices going into negative territory. Exxon shares were scraping the bottom of the barrel.

The pandemic waned, travel picked up, and the Russia-Ukraine war started, contributing to ever-higher oil prices. Today, Exxon’s shares trade at a 52-week high, and its market capitalization has “zoomed” past $400B.

What about Zoom? It’s a mere shadow of what it was in the middle of the global lockdown. Zoom’s market cap today is ~25B, and its shares are barely above their listing price. The company, which posted triple-digit revenue growth until Q1 FY22, slowed to barely double-digit growth this past quarter.

For Q1 FY23, while Zoom’s earnings per share beat expectations, revenue just about managed to come through.

Key Highlights From Q1 FY23:

Revenue: $1.07B Vs $1.07B expected
Earnings Per Share: $1.03 Vs $0.87 expected

Revenue was flat compared to Q4 FY22. Zoom expects to earn $1.12B in revenue for the current quarter, which is 9.5% higher Y-o-Y. This is the first time in Zoom’s history that growth is expected to be in single digits. EPS guidance of $0.91 was also ahead of the $0.87 estimate.

Growth Where It Matters

This past quarter, the number of companies that are Zoom clients having more than 10 employees fell to 502K from 509K in Q4. Mid-May, UBS surveyed over 400 IT decision-makers whose organizations use Zoom’s services.

60% of the interviewed participants plan to grow their spending on such services by 5% or less. A whopping 92% were mulling a consolidation of their videoconferencing services, and most were eyeing Microsoft’s Teams suite as a workplace collaboration tool. That was enough for Zoom shares to fall 7%.

To tackle the slowdown in its core business, Zoom started exploring diversification. It launched Zoom Ventures, its global investment arm focused on early growth-stage companies that align with its core business and adjacent products. More than 25 companies have received investment from Zoom Ventures thus far, with a minimum of $250K invested.

In April, the company also launched Zoom IQ, a conversation intelligence platform that uses AI to analyze sales meetings and deals to provide insights. Zoom also acquired Solvy last month for an undisclosed sum, intending to expand Zoom’s contact center and customer support business.

Zoom’s enterprise customers numbered 198K at the end of Q1, up 24% from last year, and this is expected to grow 20% in fiscal 2023. The number of customers who contribute over $100K in trailing 12-month revenue rose to 2.9K, up 46% from last year.

On a trailing 12-month price-to-earnings basis, Zoom now trades at 26x, far below its peak of over 140x. However, due to the company’s efforts on big customer growth, shares have rebounded from their all-time low of $79.

Despite the pullback, shares are down 40% this year. Zoom may have learned its lessons from the past. But the question remains, will investors be ready to answer the call again?

Market Reaction
ZM ended at $107.65, up 0.2%.

Company Snapshot 📈

ZM $107.65 +0.20 (0.19%)

Analyst Ratings (32 Analysts) BUY 47% HOLD 50% SELL 3%

Newsworthy 📰

Best Day In Two Years: Salesforce stock jumps as it raises profit forecast; CFO says company will be more ‘measured’ in hiring (CRM +9.88%)

Caveat: Victoria’s Secret reports better-than-expected profit but warns challenges could persist (VSCO +8.93%)

Change: Facebook-owner Meta Platforms’ COO Sheryl Sandberg to leave after 14 years (FB -2.58%)

Negotiations: Delta CEO says airline trying to reach aircraft deal with Boeing (DAL -5.16%)

Later Today 🕒

Asana Inc. Earnings (ASAN)
CrowdStrike Holdings Inc. Earnings (CRWD)
Designer Brands Inc. Earnings (DBI)
Hormel Foods Corp. Earnings (HRL)
Lululemon Athletica Inc. Earnings (LULU)
OKTA Inc. Earnings (OKTA)
PagerDuty Inc. Earnings (PD)
SpartanNash Co. Earnings (SPTN)
6:00 PM IST: Initial Jobless Claims

Today’s Fun Fact

Google negotiated its acquisition of YouTube’s at Denny’s over mozzarella sticks

Disclaimer: The content of this article has been created and published by Winvesta India Technologies Pvt. Ltd., in order to ease the reader’s understanding of the subject matter. The information and/or content (collectively “Information”) provided herein is general information sourced through various news reports and does not constitute a research report or a research analysis. The Information is not intended to offer advice, target or solicit any particular customer or group of customers to buy or sell securities.

Winvesta does not render any research or advisory services and provides a more detailed description of its services on its website and mobile application along with the terms and conditions published therein from time to time. While reasonable care has been exercised to ensure that the Information is adequate and reliable, no representation is made by Winvesta as to its accuracy or completeness and Winvesta, its affiliates, subsidiaries and employees accept no liability of whatsoever nature for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this Information. Neither Winvesta nor any of its affiliates are acting as an investment adviser, research analyst or in any other fiduciary capacity. Accordingly, reader’s are expected to undertake their own due diligence in consultation with their own advisors and are advised not to solely rely on the Information. Any such reliance shall be at the reader’s own risk.

All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. There is always the potential of losing money when you invest in securities, or other financial products. Investors should consider their investment objectives and risks carefully before investing.